Tough Times

Tough Times

This morning we learned that Unilife (NASDAQ:UNIS) CEO Alan Shortall loaned the company $600,000 so the company would not default on a $60 million loan from OrbiMed. The company also noted that OrbiMed has agreed to put up another $10 million in debt funding. These moves follow the company laying off 17% of their workforce last month.

Unilife is just one of many companies seeking to enter the patch pump market, a market that is becoming increasingly crowded by the day. A market that really doesn’t have that much upside yet continues to draw interest from investors.

Now we will not repeat all the reasons the patch pump market really isn’t much of a market but consider this:

Asante was all set to go public, had to withdraw their IPO and was eventually sold to BIgFoot BioMedical after closing its doors.

Valeritas was all set to go public and well nothing.

Insulet (NASDAQ:PODD) has seen its shares drop over 36% this year.

Johnson and Johnson (NYSE:JNJ) has yet to launch the Finesse patch pump.

Diabetic Investor is aware of several of several other companies who want to enter this market one of which wants to offer their patch pumps in ..wait for it.. pretty colors.

Oh we forgot to mention there are an equal number of companies developing “smart” insulin pens which will compete directly with many dumb patch pumps under development.

The fact is it really doesn’t matter whether a pump is smart or dumb, what matters is something Diabetic Investor has been saying for years when it comes to the insulin pump market this market is not large enough nor is it growing fast enough to support all the existing players let alone the many who want to enter this market. That almost anyone can develop an insulin pump, smart or dumb, but it takes real talent to run a profitable insulin pump company.

Yet still investors are pouring money into this space largely on the belief that the diabetes market continues to grow and they can make a fortune getting a small slice of a big pie. These investors have looked at the history of this market and see several billion dollar deals – Medtronic (NYSE:MDT) buying MiniMed, Johnson and Johnson buying Animas and the best of all time Roche buying Disetronic (and we all know how that worked out). Yes what many of these investors are counting on is the very nature of this wacky world where anything can and usually does happen; even when it makes no sense at all.

These investors ignore that Insulet a company that has been on the market for 10 years now still cannot achieve profitability. They ignore that even with their many missteps Medtronic controls nearly 70% of the market. They ignore the fact that JNJ has never made a money with Animas. Tandem (NASDAQ:TNDM) the latest newcomer to this space is rumored to have financial issues even with a way cool whiz bang iPhone like patient interface.

Seriously when will these investors wake up, get their heads out of the sand and see they are being sold snake oil. That this market doesn’t need more mousetraps. That well established companies have had a very tough time in this market.

When it comes to the insulin pump market, smart or dumb, the greater fool theory isn’t applicable it’s the biggest fool theory that works. We’ve said it before and we’ll say it again there is no cure for stupid.